UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): July 27, 2017 COVANTA HOLDING CORPORATION (Exact name of Registrant as Specified in Its Charter) Delaware 1-06732 95-6021257 (State or Other Jurisdiction of Incorporation) (Commission File Number) (I.R.S. Employer Identification No.) 445 South Street Morristown, New Jersey 07960 (Address of principal executive offices) (Zip Code) (862) 345-5000 (Registrant s telephone number, including area code) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction A.2. below): o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) o o o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12(b)) Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02. Results of Operations and Financial Condition. On July 27, 2017, Covanta Holding Corporation (the "Company") issued a press release reporting the unaudited results for the second quarter ended June 30, 2017, and announcing a conference call and webcast to be held at 8:30 a.m. (Eastern) on Friday, July 28, 2017 to discuss these results. A copy of this press release is attached as Exhibit 99.1 hereto and incorporated herein by reference. This information includes certain non-gaap financial information as identified in Exhibit 99.1. Item 7.01. Regulation FD Disclosure. On July 27, 2017, the Company posted to its website materials that will be used in conjunction with its conference call and webcast regarding its unaudited results for its second quarter period ended June 30, 2017, which will be held on Friday, July 28, 2017 at 8:30 a.m. (Eastern). A copy of these materials is furnished as Exhibit 99.2 to this Form 8-K. This information includes certain non-gaap financial information as identified in Exhibit 99.2. The information in this Form 8-K, Exhibit 99.1 and Exhibit 99.2 is furnished pursuant to Item 2.02 and Item 7.01 of this Form 8-K and shall not be deemed filed for the purposes of Section 18 of the Securities Exchange Act of 1934, or incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except as shall be expressly set forth by specific reference in such filing. Item 9.01. Financial Statements and Exhibits. (c) Exhibits Exhibit No. Exhibit 99.1 Press Release, dated July 27, 2017. 99.2 Earnings Materials, dated July 27, 2017.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: July 27, 2017 COVANTA HOLDING CORPORATION (Registrant) By: /s/ Timothy J. Simpson Name: Timothy J. Simpson Title: Executive Vice President, General Counsel and Secretary
COVANTA HOLDING CORPORATION EXHIBIT INDEX Exhibit No. Exhibit 99.1 Press Release, dated July 27, 2017. 99.2 Earnings Materials, dated July 27, 2017.
Exhibit 99.1 COVANTA HOLDING CORPORATION REPORTS 2017 SECOND QUARTER RESULTS AND REAFFIRMS 2017 GUIDANCE MORRISTOWN, NJ, JULY 27, 2017 - Covanta Holding Corporation (NYSE: CVA) ("Covanta" or the "Company"), a world leader in sustainable waste and energy solutions, reported financial results today for the three and six months ended June 30, 2017. Three Months Ended June 30, 2016 2017 (Unaudited, $ in millions, except per share amounts) Revenue $418 $424 Net Loss $(29) $(37) Adjusted EBITDA $82 $93 Net cash provided by operating activities $27 $16 Free Cash Flow $(5) $(21) Diluted EPS $(0.23) $(0.28) Adjusted EPS $(0.22) $(0.22) Reconciliationsofnon-GAAPmeasurescanbefoundintheexhibitstothispressrelease. Key Highlights Reaffirming 2017 guidance Dublin remains on track for commercial operations by the start of Q4 2017 Fairfax expected to return to service in Q4 2017 Strong waste market conditions and growth in Covanta Environmental Solutions Expanded centralized metals processing operations to include non-ferrous Enhanced UK development pipeline through Joint Development Agreement with Biffa for two new projects "Our second quarter results highlight strong underlying operating performance, continued improvement in waste markets and our ability to drive incremental value through our Covanta Environmental Solutions platform," said Stephen J. Jones, Covanta's President and CEO. Resumption of waste processing at Fairfax is now expected in the fourth quarter, but we expect insurance recoveries to continue to mitigate the cost of the downtime. I am proud of our team's performance in the first half of the year, and I look forward to an even stronger second half and further growth in 2018."
More detail on our second quarter results can be found in the exhibits to this release and in our second quarter 2017 earnings presentation found in the Investor Relations section of the Covanta website at www.covanta.com. 2017 Guidance The Company reaffirmed guidance for 2017 for the following key metrics: (In millions) Metric 2016 Actual 2017 Guidance Range (1) Adjusted EBITDA $410 $400 - $440 Free Cash Flow $172 $100 - $150 (1) For additional information on the reconciliation of Free Cash Flow to Cash flow provided by operating activities, see Exhibit 5 of this press release. Conference Call Information Covanta will host a conference call at 8:30 AM (Eastern) on Friday, July 28, 2017 to discuss its second quarter 2017 results. The conference call will begin with prepared remarks, which will be followed by a question and answer session. To participate, please dial 1-877-201-0168 approximately 10 minutes prior to the scheduled start of the call. If calling outside of the United States, please dial 1-647-788-4901. Please request the Covanta Holding Corporation Earnings Conference Call when prompted by the conference call operator. The conference call will also be webcast live from the Investor Relations section of the Company s website. A presentation will be made available during the call and will be found in the Investor Relations section of the Covanta website at www.covanta.com. An archived webcast will be available two hours after the end of the conference call and can be accessed through the Investor Relations section of the Covanta website at www.covanta.com. About Covanta Covanta is a world leader in providing sustainable waste and energy solutions. Annually, Covanta s modern Energy-from-Waste facilities safely convert approximately 20 million tons of waste from municipalities and businesses into clean, renewable electricity to power one million homes and recycle approximately 500,000 tons of metal. Through a vast network of treatment and recycling facilities, Covanta also provides comprehensive industrial material management services to companies seeking solutions to some of today s most complex environmental challenges. For more information, visit www.covanta.com. Cautionary Note Regarding Forward-Looking Statements Certain statements in this press release may constitute "forward-looking" statements as defined in Section 27A of the Securities Act of 1933 (the "Securities Act"), Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"), the Private Securities Litigation Reform Act of 1995 (the "PSLRA") or in releases made by the Securities and Exchange Commission ("SEC"), all as may be amended from time to time. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results,
performance or achievements of Covanta Holding Corporation and its subsidiaries ("Covanta") or industry results, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Statements that are not historical fact are forward-looking statements. Forward-looking statements can be identified by, among other things, the use of forward-looking language, such as the words "plan," "believe," "expect," "anticipate," "intend," "estimate," "project," "may," "will," "would," "could," "should," "seeks," or "scheduled to," or other similar words, or the negative of these terms or other variations of these terms or comparable language, or by discussion of strategy or intentions. These cautionary statements are being made pursuant to the Securities Act, the Exchange Act and the PSLRA with the intention of obtaining the benefits of the "safe harbor" provisions of such laws. Covanta cautions investors that any forward-looking statements made by Covanta are not guarantees or indicative of future performance. Important factors, risks and uncertainties that could cause actual results to differ materially from those forward-looking statements with respect to Covanta include, but are not limited to: fluctuations in the prices of energy, waste disposal, scrap metal and commodities; adoption of new laws and regulations in the United States and abroad; the fee structures of our contracts; difficulties in the operation of our facilities, including fuel supply and energy transfer interruptions, failure to obtain regulatory approvals, equipment failures, labor disputes and work stoppages, weather interference and catastrophic events; difficulties in the financing, development and construction of new projects and expansions, including increased construction costs and delays; limits of insurance coverage; our ability to avoid defaults under our long-term service contracts; performance of third parties under our contractual arrangements; concentration of suppliers and customers; increased competitiveness in the energy industry; changes in foreign currency exchange rates; limitations imposed by our existing indebtedness; exposure to counterparty credit risk and instability of financial institutions in connection with financing transactions; our ability to utilize our net operating losses; failures of disclosure controls and procedures; general economic conditions in the United States and abroad, including the availability of credit and debt financing and market conditions at the time our contracts expire; and other risks and uncertainties affecting our businesses described in Item 1A. Risk Factors of our Annual Report on Form 10-K and in other filings by Covanta with the SEC. Although Covanta believes that its plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, actual results could differ materially from a projection or assumption in any of its forward-looking statements. Covanta's future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. The forward-looking statements contained in this press release are made only as of the date hereof and Covanta does not have, or undertake, any obligation to update or revise any forward-looking statements whether as a result of new information, subsequent events or otherwise, unless otherwise required by law. Investor Contact Dan Mannes 1-862-345-5456 IR@covanta.com Media Contact James Regan 1-862-345-5216
Covanta Holding Corporation Exhibit 1 Condensed Consolidated Statements of Operations Operating revenue Three Months Ended June 30, Six Months Ended June 30, 2017 2016 2017 2016 (Unaudited) (In millions, except per share amounts) Waste and service revenue $ 310 $ 297 $ 596 $ 576 Energy revenue 75 86 161 187 Recycled metals revenue 15 17 31 30 Other operating revenue 24 18 40 28 Total operating revenue 424 418 828 821 Operating expense Plant operating expense 319 314 651 629 Other operating expense 2 19 17 31 General and administrative expense 30 25 58 48 Depreciation and amortization expense 52 51 104 103 Impairment charges (a) 1 4 1 19 Total operating expense 404 413 831 830 Operating income (loss) 20 5 (3) (9) Other expense Interest expense, net (35) (34) (71) (68) Loss on asset sales (a) (2) (6) Loss on extinguishment of debt (13) (13) Other income, net 2 Total other expense (50) (32) (90) (68) Loss before income tax (expense) benefit and equity in net income from unconsolidated investments (30) (27) (93) (77) Income tax (expense) benefit (8) (3) 3 7 Equity in net income from unconsolidated investments 1 1 1 4 Net Loss Attributable to Covanta Holding Corporation $ (37) $ (29) $ (89) $ (66) Weighted Average Common Shares Outstanding: Basic 130 129 129 129 Diluted 130 129 129 129 Loss Per Share: Basic $ (0.28) $ (0.23) $ (0.69) $ (0.51) Diluted $ (0.28) $ (0.23) $ (0.69) $ (0.51) Cash Dividend Declared Per Share $ 0.25 $ 0.25 $ 0.50 $ 0.50 (a) For additional information, see Exhibit 4 of this Press Release.
Covanta Holding Corporation Exhibit 2 Condensed Consolidated Balance Sheets Current: ASSETS As of June 30, 2017 December 31, 2016 (Unaudited) (In millions, except per share amounts) Cash and cash equivalents $ 48 $ 84 Restricted funds held in trust 50 56 Receivables (less allowances of $10 million and $9 million, respectively) 302 332 Prepaid expenses and other current assets 77 72 Total Current Assets 477 544 Property, plant and equipment, net 3,113 3,024 Restricted funds held in trust 55 54 Waste, service and energy contract intangibles, net 257 263 Other intangible assets, net 39 34 Goodwill 312 302 Other assets 67 63 Total Assets $ 4,320 $ 4,284 Current: LIABILITIES AND EQUITY Current portion of long-term debt $ 10 $ 9 Current portion of project debt 22 22 Accounts payable 54 98 Accrued expenses and other current liabilities 292 289 Total Current Liabilities 378 418 Long-term debt 2,368 2,243 Project debt 436 361 Deferred income taxes 606 617 Other liabilities 186 176 Total Liabilities 3,974 3,815 Equity: Covanta Holding Corporation stockholders' equity: Preferred stock ($0.10 par value; authorized 10 shares; none issued and outstanding) Common stock ($0.10 par value; authorized 250 shares; issued 136 shares, outstanding 131 and 130, respectively) 14 14 Additional paid-in capital 816 807 Accumulated other comprehensive loss (47) (62) Accumulated deficit (436) (289) Treasury stock, at par (1) (1) Total Covanta Holding Corporation stockholders' equity 346 469 Total Liabilities and Equity $ 4,320 $ 4,284
Covanta Holding Corporation Exhibit 3 Condensed Consolidated Statements of Cash Flow Six Months Ended June 30, 2017 2016 (Unaudited, in millions) OPERATING ACTIVITIES: Net loss $ (89) $ (66) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization expense 104 103 Impairment charges (a) 1 19 Loss on asset sales (a) 6 Loss on extinguishment of debt 13 Stock-based compensation expense 11 9 Deferred income taxes (6) (8) Other, net 2 2 Change in restricted funds held in trust (1) 3 Change in working capital, net of effects of acquisitions (15) Net cash provided by operating activities 26 62 INVESTING ACTIVITIES: Purchase of property, plant and equipment (152) (184) Acquisition of business, net of cash acquired (16) (9) Property insurance proceeds 5 Other, net (3) 2 Net cash used in investing activities (166) (191) FINANCING ACTIVITIES: Proceeds from borrowings on long-term debt 400 Proceeds from borrowings on revolving credit facility 633 515 Proceeds from Dublin financing 60 77 Payments of borrowings on revolving credit facility (501) (370) Payments on long-term debt (412) (1) Payments of equipment financing capital leases (2) (2) Payments on project debt (12) (9) Payments of deferred financing costs (9) (3) Cash dividends paid to stockholders (65) (65) Change in restricted funds held in trust 5 18 Common stock repurchased (20) Other, net 4 (1) Net cash provided by financing activities 101 139 Effect of exchange rate changes on cash and cash equivalents 3 2 Net (decrease) increase in cash and cash equivalents (36) 12 Cash and cash equivalents at beginning of period 84 96 Cash and cash equivalents at end of period $ 48 $ 108 (a) For additional information, see Exhibit 4 of this Press Release.
Covanta Holding Corporation Exhibit 4 Consolidated Reconciliation of Net Loss and Net Cash Provided by Operating Activities to Adjusted EBITDA Three Months Ended June 30, Six Months Ended June 30, 2017 2016 2017 2016 (Unaudited, in millions) Net Loss Attributable to Covanta Holding Corporation $ (37) $ (29) $ (89) $ (66) Depreciation and amortization expense 52 51 104 103 Interest expense, net 35 34 71 68 Income tax expense (benefit) 8 3 (3) (7) Impairment charges (a) 1 4 1 19 Loss on asset sales (b) 2 6 Loss on extinguishment of debt 13 13 Property insurance recoveries (c) (3) (3) Other adjustments: Capital type expenditures at service fee operated facilities (d) 12 12 26 23 Debt service billings in excess of revenue recognized 1 1 2 2 Severance and reorganization costs 1 1 1 2 Non-cash compensation expense 6 4 11 9 Other non-cash items 1 3 3 Other (e) 1 1 1 2 Adjusted EBITDA $ 93 $ 82 $ 144 $ 158 Capital type expenditures at service fee operated facilities (d) (12) (12) (26) (23) Cash paid for interest, net of capitalized interest (41) (45) (67) (67) Cash paid for taxes, net (2) (1) (4) Adjustment for working capital and other (22) 2 (24) (2) Net cash provided by operating activities $ 16 $ 27 $ 26 $ 62 (a) During the three months ended June 30, 2016, we recorded a non-cash impairment totaling $4 million, of which $3 million related to an investment in a joint venture to recover and recycle metals. During the six months ended June 30, 2016, we recorded non-cash impairment charges totaling $19 million, of which $13 million related to the previously planned closure of our Pittsfield EfW facility in March 2017, which we now continue to operate. (b) During the three and six months ended June 30, 2017, we recorded a $2 million and $6 million charge, respectively, for indemnification claims related to the sale of our interests in China, which was completed in 2016. (c) During the three months ended June 30, 2017, we recorded a $3 million property insurance gain related to our Plymouth, Massachusetts EfW facility. (d) Adjustment for impact of adoption of FASB ASC 853 - ServiceConcessionArrangements.These types of expenditures at our service fee operated facilities were historically capitalized prior to adoption of this new accounting standard effective January 1, 2015. (e) Includes certain other items that are added back under the definition of Adjusted EBITDA in Covanta Energy, LLC's credit agreement.
Covanta Holding Corporation Exhibit 5 Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow Three Months Ended June 30, Six Months Ended June 30, 2017 2016 2017 2016 Full Year Estimated 2017 (Unaudited, in millions) Net cash provided by operating activities $ 16 $ 27 $ 26 $ 62 $210 - $270 Less: Maintenance capital expenditures (a) (37) (32) (64) (68) (110) - (120) Free Cash Flow $ (21) $ (5) $ (38) $ (6) $100 - $150 Uses of Free Cash Flow Investments: Growth investments (b) $ (45) $ (66) $ (95) $ (125) Property insurance proceeds 3 5 Capital expenditures associated with property insurance events (8) (9) Other investing activities, net (2) 2 (3) 2 Total investments $ (52) $ (64) $ (102) $ (123) Return of capital to stockholders: Cash dividends paid to stockholders $ (32) $ (32) $ (65) $ (65) Common stock repurchased (20) Total return of capital to stockholders $ (32) $ (32) $ (65) $ (85) Capital raising activities: Net proceeds from issuance of corporate debt (c) $ $ $ 393 $ Proceeds from Dublin financing 27 40 60 77 Change in restricted funds held in trust (4) 3 13 Other financing activities, net 8 (2) 4 (1) Payment of deferred financing costs (1) (2) (3) Net proceeds from capital raising activities $ 30 $ 41 $ 455 $ 86 Debt repayments: Net cash used for scheduled principal payments on corporate debt $ (1) $ (1) $ (2) $ (1) Net cash used for principal payments on project debt (d) (7) (4) Voluntary prepayment of corporate debt (410) (410) Payments of equipment financing capital leases (1) (1) (2) (2) Total debt repayments $ (412) $ (2) $ (421) $ (7) Borrowing activities - Revolving credit facility, net $ 89 $ 64 $ 132 $ 145 Effect of exchange rate changes on cash and cash equivalents $ 2 $ $ 3 $ 2 Net change in cash and cash equivalents $ (396) $ 2 $ (36) $ 12 (a) Purchases of property, plant and equipment are also referred to as capital expenditures. Capital expenditures that primarily maintain existing facilities are classified as maintenance capital expenditures. The following table provides the components of total purchases of property, plant and equipment: Three Months Ended June 30, Six Months Ended June 30, 2017 2016 2017 2016 Maintenance capital expenditures $ (37) $ (32) $ (64) $ (68) Capital expenditures associated with construction of Dublin EfW facility (36) (48) (56) (73) Capital expenditures associated with organic growth initiatives (9) (8) (20) (22) Capital expenditures associated with the New York City MTS contract (2) (3) Capital expenditures associated with Essex County EfW emissions control system (8) (3) (18)
Total capital expenditures associated with growth investments (45) (66) (79) (116) Capital expenditures associated with property insurance events (8) (9) Total purchases of property, plant and equipment $ (90) $ (98) $ (152) $ (184) (b) Growth investments include investments in growth opportunities, including organic growth initiatives, technology, business development, and other similar expenditures. Capital expenditures associated with growth investments $ (45) $ (66) $ (79) $ (116) Acquisition of business, net of cash acquired (16) (9) Total growth investments $ (45) $ (66) $ (95) $ (125) (c) Excludes borrowings under Revolving Credit Facility. Calculated as follows: Proceeds from borrowings on long-term debt $ $ $ 400 $ Less: Financing costs related to issuance of long-term debt (7) Net proceeds from issuance of corporate debt $ $ $ 393 $ (d) Calculated as follows: Total principal payments on project debt $ (3) $ (1) $ (12) $ (9) Change in related restricted funds held in trust 3 1 5 5 Net cash used for principal payments on project debt $ $ $ (7) $ (4)
Covanta Holding Corporation Exhibit 6 Reconciliation of Diluted Loss Per Share to Adjusted EPS Three Months Ended June 30, Six Months Ended June 30, 2017 2016 2017 2016 (Unaudited) Diluted Loss Per Share $ (0.28) $ (0.23) $ (0.69) $ (0.51) Reconciling Items (a) 0.06 0.01 0.10 0.10 Adjusted EPS $ (0.22) $ (0.22) $ (0.59) $ (0.41) (a) For details related to the Reconciling Items, see Exhibit 6A of this Press Release. Covanta Holding Corporation Reconciling Items Exhibit 6A Reconciling Items Three Months Ended June 30, Six Months Ended June 30, 2017 2016 2017 2016 (Unaudited) (In millions, except per share amounts) Impairment charges (a) $ 1 $ 4 $ 1 $ 19 Loss on asset sales (a) 2 6 Property insurance recoveries (a) (3) (3) Severance and reorganization costs 1 1 1 2 Loss on extinguishment of debt 13 13 Effect on income of derivative instruments not designated as hedging instruments (3) 1 Effect of foreign exchange loss on indebtedness (1) (1) (1) Total Reconciling Items, pre-tax 13 2 17 21 Pro forma income tax impact (b) (5) (1) (5) (8) Grantor trust activity 1 Total Reconciling Items, net of tax $ 8 $ 1 $ 13 $ 13 Diluted Earnings Per Share Impact $ 0.06 $ 0.01 $ 0.10 $ 0.10 Weighted Average Diluted Shares Outstanding 130 129 129 129 (a) For additional information, see Exhibit 4 of this Press Release. (b) We calculate the federal and state tax impact of each item using the statutory federal tax rate and applicable blended state rate.
Covanta Holding Corporation Exhibit 7 Supplemental Information (Unaudited, $ in millions) Three Months Ended June 30, 2017 2016 Revenue: Waste and service: EfW waste processing $ 242 $ 238 Environmental services (a) 30 25 Municipal services (b) 52 49 Other revenue (c) 10 9 Intercompany (d) (25) (24) Total waste and service 310 297 Energy: EfW energy sales 64 76 EfW capacity 11 10 Total energy revenue 75 86 Recycled metals: Ferrous 10 11 Non-ferrous 4 6 Total recycled metals 15 17 Other revenue 24 18 Total revenue $ 424 $ 418 Operating expense: Plant operating expense: Plant maintenance $ 79 $ 82 Other plant operating expense 240 232 Total plant operating expense 319 314 Other operating expense 2 19 General and administrative 30 25 Depreciation and amortization 52 51 Impairment charges 1 4 Total operating expense $ 404 $ 413 Operating Income $ 20 $ 5 Operating Income excluding Impairment charges: $ 21 $ 9 (a) Includes the operation of material processing facilities and related services. (b) Consists of transfer stations and transportation component of NYC MTS contract. (c) Includes waste brokerage, debt service and other revenue unrelated to EfW waste processing. (d) Consists of elimination of intercompany transactions primarily relating to transfer stations. Note: Certain amounts may not total due to rounding.
Covanta Holding Corporation Exhibit 8 Revenue and Operating Income Changes - Q2 2016 to Q2 2017 (Unaudited, $ in millions) Revenue: Waste and service: Organic Growth (a) Contract Transitions (b) Q2 2016 Total % Waste PPA Transactions (c) Total Changes Q2 2017 EfW waste processing $ 238 $ 2 0.8 % $ 2 $ $ $ 4 $ 242 Environmental services 25 3 10.6 % 3 5 30 Municipal services 49 3 3 52 Other revenue 9 1 1 10 Intercompany (24) (1) (1) (25) Total waste and service 297 7 2.4 % 2 3 12 310 Energy: EfW energy sales 76 (5) -6.3 % 1 (8) (12) 64 EfW capacity 10 1 13.9 % 1 11 Total energy revenue 86 (3) -4.1 % 1 (8) (11) 75 Recycled metals: Ferrous 11-2.0 % 10 Non-ferrous 6 (2) -31.2 % (2) 4 Total recycled metals 17 (2) -12.6 % (2) 15 Other revenue 18 7 36.9 % 7 24 Total revenue $ 418 $ 8 2.0 % $ 3 $ (8) $ 2 $ 5 $ 424 Operating expense: Plant operating expense: Plant maintenance $ 82 $ (4) -4.5 % $ $ $ $ (4) $ 79 Other plant operating expense 232 8 3.4 % (1) 1 8 240 Total plant operating expense 314 4 1.3 % (1) 1 5 319 Other operating expense (income) 19 (17) (17) 2 General and administrative 25 4 4 30 Depreciation and amortization 51 (1) 1 1 52 Total operating expense (income) $ 409 $ (9) $ 1 $ $ 1 $ (7) $ 403 Operating Income (Loss) excluding Impairment Charges $ 9 $ 17 $ 2 $ (8) $ 1 $ 12 $ 21 (a) Reflects performance on a comparable period-over-period basis, excluding the impacts of transitions and transactions. (b) Includes the impact of the expiration of: (1) long-term major waste and service contracts, most typically representing the transition to a new contract structure, and (2) long-term energy contracts. (c) Includes the impacts of acquisitions, divestitures, new projects and the addition or loss of operating contracts. Note: Excludes impairment charges. Note: Certain amounts may not total due to rounding.
North America - Operating Metrics Exhibit 9 (Unaudited) EfW Waste Tons: (in millions) Three Months Ended June 30, 2017 2016 Contracted 4.3 4.4 Uncontracted 0.5 0.5 Total tons 4.8 4.9 Revenue per ton: Contracted $ 47.70 $ 45.87 Uncontracted $ 79.95 $ 74.94 Average revenue per ton $ 50.88 $ 48.71 EfW Energy Energy sales: (MWh in millions) Contracted 0.6 0.9 Hedged 0.7 0.4 Market 0.2 0.2 Total energy sales 1.4 1.5 Market sales by geography: PJM East 0.1 NEPOOL 0.1 NYISO Other 0.1 0.1 Revenue per MWh (excludes capacity): Contracted $ 67.70 $ 62.06 Hedged $ 29.02 $ 37.19 Market $ 27.80 $ 26.02 Average revenue per MWh $ 44.83 $ 49.25 Metals Tons Recovered: (in thousands) Ferrous 98 102 Non-ferrous 9 9 Tons Sold: (in thousands) Ferrous 68 77 Non-ferrous 5 9 Revenue per ton: Ferrous $ 152 $ 138 Non-ferrous $ 892 $ 650 EfW plant operating expense: ($ in millions) Plant operating expense - gross $ 255 $ 255 Less: Client pass-through costs (13) (9) Less: REC sales - contra-expense (2) (1) Plant operating expense - reported $ 240 $ 245 Client pass-throughs as % of gross costs 5.1% 3.6% Discussion of Non-GAAP Financial Measures We use a number of different financial measures, both United States generally accepted accounting principles ( GAAP ) and non-gaap, in assessing the overall performance of our business. To supplement our assessment of results prepared in accordance
with GAAP, we use the measures of Adjusted EBITDA, Free Cash Flow, and Adjusted EPS, which are non-gaap measures as defined by the Securities and Exchange Commission. The non-gaap financial measures of Adjusted EBITDA, Free Cash Flow, and Adjusted EPS as described below, and used in the tables above, are not intended as a substitute or as an alternative to net income, cash flow provided by operating activities or diluted earnings per share as indicators of our performance or liquidity or any other measures of performance or liquidity derived in accordance with GAAP. In addition, our non-gaap financial measures may be different from non-gaap measures used by other companies, limiting their usefulness for comparison purposes. The presentations of Adjusted EBITDA, Free Cash Flow and Adjusted EPS are intended to enhance the usefulness of our financial information by providing measures which management internally use to assess and evaluate the overall performance of its business and those of possible acquisition candidates, and highlight trends in the overall business. Adjusted EBITDA We use Adjusted EBITDA to provide further information that is useful to an understanding of the financial covenants contained in the credit facilities as of June 30, 2017 of our most significant subsidiary, Covanta Energy, LLC, ("Covanta Energy"), through which we conduct our core waste and energy services business, and as additional ways of viewing aspects of its operations that, when viewed with the GAAP results and the accompanying reconciliations to corresponding GAAP financial measures, provide a more complete understanding of our core business. The calculation of Adjusted EBITDA is based on the definition in Covanta Energy s credit facilities as of June 30, 2017, which we have guaranteed. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization, as adjusted for additional items subtracted from or added to net income. Because our business is substantially comprised of that of Covanta Energy, our financial performance is substantially similar to that of Covanta Energy. For this reason, and in order to avoid use of multiple financial measures which are not all from the same entity, the calculation of Adjusted EBITDA and other financial measures presented herein are ours, measured on a consolidated basis. Under the credit facilities as of June 30, 2017, Covanta Energy is required to satisfy certain financial covenants, including certain ratios of which Adjusted EBITDA is an important component. Compliance with such financial covenants is expected to be the principal limiting factor which will affect our ability to engage in a broad range of activities in furtherance of our business, including making certain investments, acquiring businesses and incurring additional debt. Covanta Energy was in compliance with these covenants as of June 30, 2017. Failure to comply with such financial covenants could result in a default under these credit facilities, which default would have a material adverse effect on our financial condition and liquidity. These financial covenants are measured on a trailing four quarter period basis and the material covenants are as follows: maximum Covanta Energy leverage ratio of 4.00 to 1.00, which measures Covanta Energy s Consolidated Adjusted Debt (which is the principal amount of its consolidated debt less certain restricted funds dedicated to repayment of project debt principal and construction costs) to its Adjusted EBITDA (which for purposes of calculating the leverage ratio and interest coverage ratio, is adjusted on a pro forma basis for acquisitions and dispositions made during the relevant period); and minimum Covanta Energy interest coverage ratio of 3.00 to 1.00, which measures Covanta Energy s Adjusted EBITDA to its consolidated interest expense plus certain interest expense of ours, to the extent paid by Covanta Energy. In order to provide a meaningful basis for comparison, we are providing information with respect to our Adjusted EBITDA for the three and six months ended June 30, 2017 and 2016, reconciled for each such period to net income and cash flow provided by operating activities, which are believed to be the most directly comparable measures under GAAP. Our projected full year 2017 Adjusted EBITDA is not based on GAAP net income/loss and is anticipated to be adjusted to exclude the effects of events or circumstances in 2017 that are not representative or indicative of our results of operations. Projected GAAP net income/loss for the full year would require inclusion of the projected impact of future excluded items, including items that are not currently determinable, but may be significant, such as asset impairments and one-time items, charges, gains or losses from divestitures, or other items. Due to the uncertainty of the likelihood, amount and timing of any such items, we do not have information available to provide a quantitative reconciliation of full year 2017 projected net income/loss to an Adjusted EBITDA projection.
Free Cash Flow Free Cash Flow is defined as cash flow provided by operating activities, less maintenance capital expenditures, which are capital expenditures primarily to maintain our existing facilities. We use the non-gaap measure of Free Cash Flow as a criterion of liquidity and performance-based components of employee compensation. We use Free Cash Flow as a measure of liquidity to determine amounts we can reinvest in our core businesses, such as amounts available to make acquisitions, invest in construction of new projects, make principal payments on debt, or amounts we can return to our stockholders through dividends and/or stock repurchases. In order to provide a meaningful basis for comparison, we are providing information with respect to our Free Cash Flow for the three and six months ended June 30, 2017 and 2016, reconciled for each such period to cash flow provided by operating activities, which we believe to be the most directly comparable measure under GAAP. Adjusted EPS Adjusted EPS excludes certain income and expense items that are not representative of our ongoing business and operations, which are included in the calculation of Diluted Earnings Per Share in accordance with GAAP. The following items are not all-inclusive, but are examples of reconciling items in prior comparative and future periods. They would include impairment charges, the effect of derivative instruments not designated as hedging instruments, significant gains or losses from the disposition or restructuring of businesses, gains and losses on assets held for sale, transaction-related costs, income and loss on the extinguishment of debt and other significant items that would not be representative of our ongoing business. We will use the non-gaap measure of Adjusted EPS to enhance the usefulness of our financial information by providing a measure which management internally uses to assess and evaluate the overall performance and highlight trends in the ongoing business. In order to provide a meaningful basis for comparison, we are providing information with respect to our Adjusted EPS for the three and six months ended June 30, 2017 and 2016, reconciled for each such period to diluted income per share, which is believed to be the most directly comparable measure under GAAP. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements in this press release constitute forward-looking statements as defined in Section 27A of the Securities Act of 1933 (the Securities Act ), Section 21E of the Securities Exchange Act of 1934 (the Exchange Act ), the Private Securities Litigation Reform Act of 1995 (the PSLRA ) or in releases made by the Securities and Exchange Commission ( SEC ), all as may be amended from time to time. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of Covanta Holding Corporation and its subsidiaries ( Covanta ) or industry results, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Statements that are not historical fact are forward-looking statements. Forward-looking statements can be identified by, among other things, the use of forward-looking language, such as the words plan, believe, expect, anticipate, intend, estimate, project, may, will, would, could, should, seeks, or scheduled to, or other similar words, or the negative of these terms or other variations of these terms or comparable language, or by discussion of strategy or intentions. These cautionary statements are being made pursuant to the Securities Act, the Exchange Act and the PSLRA with the intention of obtaining the benefits of the safe harbor provisions of such laws. Covanta cautions investors that any forward-looking statements made by us are not guarantees or indicative of future performance. Important factors, risks and uncertainties that could cause actual results to differ materially from those forward-looking statements include, but are not limited to: seasonal or long-term fluctuations in the prices of energy, waste disposal, scrap metal and commodities, and our ability to renew or replace expiring contracts at comparable pricing; adoption of new laws and regulations in the United States and abroad, including energy laws, environmental laws, labor laws and healthcare laws; our ability to avoid adverse publicity relating to our business expansion efforts; advances in technology; difficulties in the operation of our facilities, including fuel supply and energy delivery interruptions, failure to obtain regulatory approvals, equipment failures, labor disputes and work stoppages, and weather interference and catastrophic events; failure to maintain historical performance levels at our facilities and our ability to retain the rights to operate facilities we do not own; difficulties in the financing, development and construction of new projects and expansions, including increased construction costs and delays; our ability to realize the benefits of long-term business development and bear the costs of business development over time;
our ability to utilize net operating loss carryforwards; limits of insurance coverage; our ability to avoid defaults under our long-term contracts; performance of third parties under our contracts and such third parties' observance of laws and regulations; concentration of suppliers and customers; geographic concentration of facilities; increased competitiveness in the energy and waste industries; changes in foreign currency exchange rates; limitations imposed by our existing indebtedness and our ability to perform our financial obligations and guarantees and to refinance our existing indebtedness; exposure to counterparty credit risk and instability of financial institutions in connection with financing transactions; the scalability of our business; restrictions in our certificate of incorporation and debt documents regarding strategic alternatives; failures of disclosure controls and procedures and internal controls over financial reporting; our ability to attract and retain talented people; general economic conditions in the United States and abroad, including the availability of credit and debt financing; and other risks and uncertainties affecting our businesses described in Item 1A. Risk Factors of Covanta's Annual Report on Form 10-K for the year ended December 31, 2016 and in other filings by Covanta with the SEC. Although we believe that our plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, actual results could differ materially from a projection or assumption in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. The forward-looking statements contained in this press release are made only as of the date hereof and we do not have, or undertake, any obligation to update or revise any forward-looking statements whether as a result of new information, subsequent events or otherwise, unless otherwise required by law.
NYSE: CVA July 27, 2017 Second Quarter 2017 Earnings Conference Call
July 27, 2017 2 Cautionary Statements All information included in this earnings presentation is based on continuing operations, unless otherwise noted. Forward-Looking Statements Certain statements in this press release constitute forward-looking statements as defined in Section 27A of the Securities Act of 1933 (the Securities Act ), Section 21E of the Securities Exchange Act of 1934 (the Exchange Act ), the Private Securities Litigation Reform Act of 1995 (the PSLRA ) or in releases made by the Securities and Exchange Commission ( SEC ), all as may be amended from time to time. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of Covanta Holding Corporation and its subsidiaries ( Covanta ) or industry results, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Statements that are not historical fact are forward-looking statements. Forward-looking statements can be identified by, among other things, the use of forward-looking language, such as the words plan, believe, expect, anticipate, intend, estimate, project, may, will, would, could, should, seeks, or scheduled to, or other similar words, or the negative of these terms or other variations of these terms or comparable language, or by discussion of strategy or intentions. These cautionary statements are being made pursuant to the Securities Act, the Exchange Act and the PSLRA with the intention of obtaining the benefits of the safe harbor provisions of such laws. Covanta cautions investors that any forward- looking statements made by us are not guarantees or indicative of future performance. Important assumptions and other important factors that could cause actual results to differ materially from those forward-looking statements with respect to Covanta, include, but are not limited to, the risk that Covanta may not successfully grow its business as expected or close its announced or planned acquisitions or projects in development, and those factors, risks and uncertainties that are described in periodic securities filings by Covanta with the SEC. Although we believe that our plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, actual results could differ materially from a projection or assumption in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. The forward-looking statements contained in this press release are made only as of the date hereof and we do not have, or undertake, any obligation to update or revise any forward-looking statements whether as a result of new information, subsequent events or otherwise, unless otherwise required by law. Note: All estimates with respect to 2017 and future periods are as of July 27, 2017. Covanta does not have or undertake any obligation to update or revise any forward- looking statements whether as a result of new information, subsequent events or otherwise, unless otherwise required by law. Non-GAAP Financial Measures We use a number of different financial measures, both United States generally accepted accounting principles ( GAAP ) and non-gaap, in assessing the overall performance of our business. The non-gaap financial measures of Adjusted EBITDA, Free Cash Flow and Adjusted EPS, as described and used in this earnings presentation, are not intended as a substitute or as an alternative to net income, cash flow provided by operating activities or diluted earnings per share as indicators of our performance or liquidity or any other measures of performance or liquidity derived in accordance with GAAP. In addition, our non-gaap financial measures may be different from non-gaap measures used by other companies, limiting their usefulness for comparison purposes. The presentations of Adjusted EBITDA, Free Cash Flow and Adjusted EPS are intended to enhance the usefulness of our financial information by providing measures which management internally use to assess and evaluate the overall performance of its business and those of possible acquisition candidates, and highlight trends in the overall business. Please refer to the appendix of this presentation for reconciliations of non-gaap financial measures.
July 27, 2017 3 Q2 2017 Summary (in millions, except per share amounts) Q2 2016 Q2 2017 FY 2017 Guidance (1) Revenue $418 $424 N/A Adjusted EBITDA $82 $93 $400 - $440 Net cash provided by operating activities $27 $16 N/A Free Cash Flow $(5) $(21) $100 - $150 Diluted EPS $(0.23) $(0.28) N/A Adjusted EPS $(0.22) $(0.22) N/A (Unaudited) Reaffirming 2017 guidance Dublin remains on track for commercial operations by the start of Q4 2017 Fairfax expected to return to service in Q4 2017 Strong waste market conditions and growth in Covanta Environmental Solutions ("CES") Expanded centralized metals processing operations to include non-ferrous Enhanced UK development pipeline through Joint Development Agreement with Biffa for two new projects 1) Guidance reaffirmed as of July 27, 2017.
July 27, 2017 4 5) Excludes liquid waste. 6) Includes contracts at transfer stations from which waste is internalized. 7) Calculated for EfW waste processing revenue presented above. Note: certain amounts may not total due to rounding. Waste Update Client and new business activity: Extended major tip fee contract at Delaware Valley Completed small environmental services acquisition in pharmaceutical space Q2 2017 revenue drivers vs. Q2 2016: EfW waste processing revenue up $4 million Average revenue per ton +3.3% same store, partially offset by downtime at Fairfax ($8 million) Internalized profiled waste revenue up +10% Contract transitions added $2 million Covanta Environmental Solutions Environmental services revenue up ~21% driven by organic growth (~11% ) and acquisitions Profiled waste growth contributing to higher average EfW pricing Trends and outlook: Strong waste price environment Targeting double-digit profiled waste growth in 2017 Reducing full year volume outlook on Fairfax timing (insurance to compensate for loss of volume) 1) Includes the operation of material processing facilities and related services. 2) Consists of transfer stations and transportation component of NYC MTS contract. 3) Includes waste brokerage, debt service and other revenue unrelated to EfW waste processing. 4) Elimination of intercompany transactions primarily relating to transfer stations. (Unaudited) (in millions, except price) Q2 2016A Q2 2017A 2017E Waste & Service Revenue: EfW Waste Processing $238 $242 $970 - $995 Environmental Services (1) 25 30 100-110 Municipal Services (2) 49 52 ~200 Other (3) 9 10 ~30 Intercompany (4) (24) (25) ~ (90) Total $297 $310 $1,210 - $1,245 EfW Tons: (5) Contracted (6) 4.41 4.29 Uncontracted 0.48 0.47 Total 4.89 4.76 19.2-19.4 EfW Revenue per Ton: (7) Contracted $45.87 $47.70 Uncontracted $74.94 $79.95 Average $48.71 $50.88 $50.50 - $51.25
July 27, 2017 5 Energy Update (in millions, except price; MWh sold in millions) Q2 2016A Q2 2017A 2017E Energy Revenue: EfW Energy Sales $76 $64 $280 - $300 EfW Capacity 10 11 ~40 Total $86 $75 $320 - $340 EfW MWh Sold: Contracted 0.9 0.6 2.3-2.5 Hedged 0.4 0.7 2.7 Market 0.2 0.2 1.0 Total 1.5 1.4 6.0-6.2 EfW Revenue per MWh: (1) Contracted $62.06 $67.70 $66 - $67 Hedged $37.19 $29.02 ~ $36 Market $26.02 $27.80 $24 - $30 Average $49.25 $44.83 $45 - $47 Q2 2017 revenue drivers vs. Q2 2016: EfW energy revenue decreased $3 million (4.1%) on a same store basis Price up 3.0% Volume down $7 million (9.3%), driven primarily by downtime at Fairfax ($7 million) Contract transitions reduced revenue by $7 million Legacy PPA expirations partially offset by higher contractual revenue share Trends and outlook: Power prices remain muted amid higher natural gas storage levels and relatively mild weather Reducing full year volume outlook on Fairfax timing (insurance to compensate for loss of volume) Hedge activity: 2017 market exposure reduced to 1.0 million MWh 2018 market exposure now only 2.1 million MWh Beginning to layer in 2019 hedges 1) Excludes capacity revenue. Note: certain amounts may not total due to rounding. (Unaudited)
July 27, 2017 6 Recycled Metals Update ($ in millions, except price; tons in thousands) Q2 2016A Q2 2017A 2017E Metals Revenue: Ferrous $11 $10 $40 - $45 Non-Ferrous 6 4 30-35 Total $17 $15 $70 - $80 Tons Recovered: Ferrous 102 98 390-395 Non-Ferrous 9 9 35-40 Tons Sold: Ferrous 77 68 295-305 Non-Ferrous 9 5 28-33 Revenue per Ton Sold: Ferrous $138 $152 $135 - $150 Non-Ferrous $650 $892 $1,000 - $1,100 Average HMS index price (1) $220 $263 $225 - $250 Average Old Cast Aluminum (2) $0.58 $0.63 $0.57 - $0.63 Q2 2017 revenue drivers vs. Q2 2016: Ferrous: Price up $1 million (13%) Volume down $2 million (15%) due to lower waste processing (Fairfax) and shipment timing Non-ferrous: Higher realized pricing due to processing Volume down $4 million (69%) due to longer sales cycle for processed material Trends and outlook: HMS Index averaged $263 per ton in Q2 and set at $265 in July Tightening 2017 HMS outlook to $225- $250 Realized non-ferrous pricing expected to improve further in 2H as more material is processed Non-ferrous sales cycle to normalize in subsequent quarters after initial timing lag 1) Q2 2017 and Q2 2016 average #1 Heavy Melt Steel composite index ($ / gross ton) as published by American Metal Market. 2) Q2 2017 and Q2 2016 average Old Cast Aluminum Scrap ($ / pound) calculated using the high price as published by American Metal Market. (Unaudited)
July 27, 2017 7 Maintenance and Operating Expenses Q2 2017 summary: Total EfW maintenance (expense + capex) largely flat year-over-year Q2 2017 maintenance expense lower vs. prior year due to heavier 2017 weighting to Q1 Other plant operating expense increased 3.4% CES growth Start-up of centralized non-ferrous processing EfW other plant operating expense roughly flat year-over-year Q2 2017 other operating expense includes contra expense of $20 million from insurance recoveries, including $17 million from business interruption Trends and outlook: 62% of full year EfW maintenance spend (at midpoint of guidance) complete Other plant operating expense expected to trend up in Q4 with Dublin commercial operations Fairfax insurance recoveries to continue, with incremental receipts weighted towards Q4 and a portion now likely to be received in 2018 (in millions) Q2 2016A Q2 2017A 2017E Plant Maintenance Expense: EfW $81 $78 $275 - $285 Other 2 1 Total $82 $79 Maintenance Capex: EfW $28 $33 $90 - $100 Other 4 4 ~20 Total $32 $37 $110 - $120 Total EfW Maintenance Spend $109 $110 $365 - $385 Other Plant Operating Expense: EfW $162 $163 Other 70 77 Total $232 $240 Other Operating Expense $19 $2 (Unaudited) Note: certain amounts may not total due to rounding.
July 27, 2017 8 Financial Overview
July 27, 2017 9 Revenue: Q2 2017 vs. Q2 2016 1) Includes waste and service revenue, energy and metals volume, metals processing and construction activity. 2) Energy price includes capacity payments. Note: certain amounts may not total due to rounding. (2)(1)
July 27, 2017 10 Adjusted EBITDA: Q2 2017 vs. Q2 2016 1) Includes waste and service revenue, energy and metals volume, metals processing, plant operating costs, construction activity and overhead. 2) Energy price includes capacity payments. (1) (2)
July 27, 2017 11 Free Cash Flow: Q2 2017 vs. Q2 2016
July 27, 2017 12 Growth Investment Outlook (Unaudited, in millions) FY 2016 Actual YTD 6-30-17 FY 2017 Outlook Organic growth investments (1) $46 $20 ~ $30 New York City MTS contract 3 Essex County EfW emissions control system (2) 33 3 ~5 Acquisitions 9 16 16 Subtotal: Corporate funded $91 $39 ~ $50 Dublin facility construction 162 56 ~100 Total growth investments $253 $95 ~ $150 1) Organic growth programs are focused primarily on growing waste, energy and metal revenue and/or reducing operating costs. 2) Classified as growth investment because cost is reflected in overall economic benefit of contract restructuring completed in 2013. Note: certain amounts may not total due to rounding. Remaining Dublin investment to be funded entirely with project financing no impact on domestic capital allocation Acquisitions to be targeted on an opportunistic basis potential additional activity not reflected in FY 2017 outlook Property insurance proceeds offset capital expenditures by $3 million in Q2
July 27, 2017 13 (Face value; unaudited, in millions) 12/31/2015 12/31/2016 6/30/2017 Cash and Cash Equivalents $94 $84 $48 Corporate Debt: Secured $621 $608 $736 Unsecured 1,664 1,664 1,664 Total Corporate Debt $2,285 $2,272 $2,400 Project Debt 197 406 480 Total Debt $2,482 $2,678 $2,880 Net Debt (1) $2,326 $2,547 $2,789 Stockholders Equity $640 $469 $346 Credit Ratios: Net Debt / Adjusted EBITDA 5.4x 6.2x 7.0x Excluding Non-Recourse Construction Debt (2) 5.3x 5.7x 6.3x Senior Credit Facility Leverage Ratio (3) 2.9x 3.0x 3.5x Capitalization Summary 1) Net debt is calculated as total principal amount of debt outstanding less cash and cash equivalents, debt service principal-related restricted funds ($13 million at June 30, 2017) and escrowed construction financing proceeds ($30 million at June 30, 2017). 2) Excludes $287 million of net debt (debt of $299 million less restricted funds of $12 million) outstanding at June 30, 2017 at Dublin project subsidiary. 3) Leverage ratio as calculated for senior credit facility covenant. Effectively represents leverage at Covanta Energy, LLC and subsidiaries.
July 27, 2017 14 Appendix
July 27, 2017 15 Long-term Outlook: Energy Detail Consolidated EfW (Unaudited, in millions, except price) 2015A 2016A 2017E 2018E 2019E 2020E 2021E MWh Sold CVA Share: Contracted 3.0 3.1 2.4 2.1 2.1 2.1 2.1 Hedged 1.4 1.9 2.7 2.6 0.2 Market 1.4 1.0 1.0 2.1 4.5 4.7 4.7 Total MWh Sold 5.8 6.1 ~6.1 ~6.8 ~6.8 ~6.8 ~6.8 Market Sales (MWh) by Geography: PJM East 0.5 0.3 0.3 0.9 2.6 2.7 2.7 NEPOOL 0.3 0.2 0.2 0.4 1.1 1.2 1.2 NYISO 0.1 0.1 0.1 0.2 0.2 0.2 0.2 Other 0.4 0.4 0.4 0.6 0.6 0.6 0.6 Total Market Sales 1.4 1.0 1.0 2.1 4.5 4.7 4.7 Revenue per MWh: (1) Contracted $65.56 $65.98 ~$67 Hedged $45.64 $42.77 ~$36 Market $33.18 $31.35 ~$27 Average Revenue per MWh $53.17 $52.70 ~$46 Note: hedged generation as presented above reflects only existing hedges. Certain amounts may not total due to rounding. 1) Excludes capacity revenue. Note: Production estimates for 2018-2021 are approximated based on historical operating performance and expected contract structures
July 27, 2017 16 1) Adjustment for impact of adoption of FASB ASC 853 Service Concession Arrangements. 2) Guidance reaffirmed as of July 27, 2017. Non-GAAP Reconciliation: Adjusted EBITDA & Free Cash Flow Q2 YTD Full Year (Unaudited, in millions) 2016 2017 2016 2017 Estimated 2017 Net Loss Attributable to Covanta Holding Corporation $(29) $(37) $(66) $(89) Depreciation and amortization expense 51 52 103 104 Interest expense, net 34 35 68 71 Income tax benefit 3 8 (7) (3) Impairment charges 4 1 19 1 Debt service billings in excess of revenue recognized 1 1 2 2 Severance and reorganization costs 1 1 2 1 Non-cash compensation expense 4 6 9 11 Capital type expenditures at service fee operated facilities (1) 12 12 23 26 Loss on asset sales 2 6 Loss on extinguishment of debt 13 13 Property insurance recoveries (3) (3) Other, including Other non-cash items 1 2 5 4 Total adjustments 111 130 224 233 Adjusted EBITDA (2) $82 $93 $158 $144 $400 - $440 Cash paid for interest, net of capitalized interest (45) (41) (67) (67) Cash paid for taxes, net (2) (4) (1) Capital type expenditures at service fee operated facilities (1) (12) (12) (23) (26) Adjustment for working capital and other 2 (22) (2) (24) Net cash provided by operating activities $27 $16 $62 $26 $210 - $270 Maintenance capital expenditures (32) (37) (68) (64) (110) - (120) Free Cash Flow (2) $(5) $(21) $(6) $(38) $100 - $150 Diluted Weighted Average Shares Outstanding 129 130 129 129
July 27, 2017 17 Non-GAAP Reconciliation: Adjusted EBITDA Full Year LTM (Unaudited, in millions) 2015 2016 June 30, 2017 Net Income (Loss) Attributable to Covanta Holding Corporation $68 $(4) $(24) Depreciation and amortization expense 198 207 208 Interest expense, net 134 138 141 Income tax (benefit) expense (84) 22 23 Impairment charges 43 20 2 Gain on sale of assets, net (44) (38) Property insurance recoveries (3) Loss on extinguishment of debt 2 13 Net income attributable to noncontrolling interests in subsidiaries 1 Debt service billings in excess of revenue recognized 1 4 4 Severance and reorganization costs 4 3 2 Non-cash compensation expense 18 16 18 Capital type expenditures at service fee operated facilities (1) 31 39 42 Other (includes other non-cash items) 12 9 8 Total adjustments 360 414 420 Adjusted EBITDA $428 $410 $396 Note: Adjusted EBITDA results provided to reconcile the denominator of the Net Debt / Adjusted EBITDA ratios on slide 13. 1) Adjustment for impact of adoption of FASB ASC 853 Service Concession Arrangements.
July 27, 2017 18 Non-GAAP Reconciliation: Adjusted EPS Q2 YTD (Unaudited, in millions, except per share amounts) 2016 2017 2016 2017 Diluted Loss Per Share $(0.23) $(0.28) $(0.51) $(0.69) Reconciling Items 0.01 0.06 0.10 0.10 Adjusted EPS $(0.22) $(0.22) $(0.41) $(0.59) Reconciling Items Impairment charges $4 $1 $19 $1 Severance and reorganization costs 1 1 2 1 Loss on extinguishment of debt 13 13 Effect on income of derivative instruments not designated as hedging instruments (3) 1 Property insurance recoveries (3) (3) Effect of foreign exchange loss on indebtedness (1) (1) (1) Loss on sale of assets 2 6 Total Reconciling Items, pre-tax 2 13 21 17 Pro forma income tax impact (1) (5) (8) (5) Grantor trust activity 1 Total Reconciling Items, net of tax $1 $8 $13 $13 Diluted Earnings Per Share Impact $0.01 $0.06 $0.10 $0.10 Diluted Weighted Average Shares Outstanding 129 130 129 129
July 27, 2017 19 Non-GAAP Financial Measures Free Cash Flow Free Cash Flow is defined as cash flow provided by operating activities, less maintenance capital expenditures, which are capital expenditures primarily to maintain our existing facilities. We use the non- GAAP measure of Free Cash Flow as a criterion of liquidity and performance-based components of employee compensation. We use Free Cash Flow as a measure of liquidity to determine amounts we can reinvest in our core businesses, such as amounts available to make acquisitions, invest in construction of new projects, make principal payments on debt, or amounts we can return to our stockholders through dividends and/or stock repurchases. In order to provide a meaningful basis for comparison, we are providing information with respect to our Free Cash Flow for the three and six months ended June 30, 2017 and 2016, reconciled for each such period to cash flow provided by operating activities, which we believe to be the most directly comparable measure under GAAP. Adjusted EBITDA We use Adjusted EBITDA to provide further information that is useful to an understanding of the financial covenants contained in the credit facilities as of June 30, 2017 of our most significant subsidiary, Covanta Energy, LLC ("Covanta Energy"), through which we conduct our core waste and energy services business, and as additional ways of viewing aspects of its operations that, when viewed with the GAAP results and the accompanying reconciliations to corresponding GAAP financial measures, provide a more complete understanding of our core business. The calculation of Adjusted EBITDA is based on the definition in Covanta Energy s credit facilities as of June 30, 2017, which we have guaranteed. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization, as adjusted for additional items subtracted from or added to net income. Because our business is substantially comprised of that of Covanta Energy, our financial performance is substantially similar to that of Covanta Energy. For this reason, and in order to avoid use of multiple financial measures which are not all from the same entity, the calculation of Adjusted EBITDA and other financial measures presented herein are ours, measured on a consolidated basis. Under the credit facilities as of June 30, 2017, Covanta Energy is required to satisfy certain financial covenants, including certain ratios of which Adjusted EBITDA is an important component. Compliance with such financial covenants is expected to be the principal limiting factor which will affect our ability to engage in a broad range of activities in furtherance of our business, including making certain investments, acquiring businesses and incurring additional debt. Covanta Energy was in compliance with these covenants as of June 30, 2017. Failure to comply with such financial covenants could result in a default under these credit facilities, which default would have a material adverse affect on our financial condition and liquidity. These financial covenants are measured on a trailing four quarter period basis and the material covenants are as follows: maximum Covanta Energy leverage ratio of 4.00 to 1.00, which measures Covanta Energy s Consolidated Adjusted Debt (which is the principal amount of its consolidated debt less certain restricted funds dedicated to repayment of project debt principal and construction costs) to its Adjusted EBITDA (which for purposes of calculating the leverage ratio and interest coverage ratio, is adjusted on a pro forma basis for acquisitions and dispositions made during the relevant period); and minimum Covanta Energy interest coverage ratio of 3.00 to 1.00, which measures Covanta Energy s Adjusted EBITDA to its consolidated interest expense plus certain interest expense of ours, to the extent paid by Covanta Energy. In order to provide a meaningful basis for comparison, we are providing information with respect to our Adjusted EBITDA for the three and six months ended June 30, 2017 and 2016, reconciled for each such period to net income and cash flow provided by operating activities, which are believed to be the most directly comparable measures under GAAP. Our projected full year 2017 Adjusted EBITDA is not based on GAAP net income/loss and is anticipated to be adjusted to exclude the effects of events or circumstances in 2017 that are not representative or indicative of our results of operations. Projected GAAP net income/loss for the full year would require inclusion of the projected impact of future excluded items, including items that are not currently determinable, but may be significant, such as asset impairments and one-time items, charges, gains or losses from divestitures, or other items. Due to the uncertainty of the likelihood, amount and timing of any such items, we do not have information available to provide a quantitative reconciliation of full year 2017 projected net income/loss to an Adjusted EBITDA projection. Adjusted EPS Adjusted EPS excludes certain income and expense items that are not representative of our ongoing business and operations, which are included in the calculation of Diluted Earnings Per Share in accordance with GAAP. The following items are not all-inclusive, but are examples of reconciling items in prior comparative and future periods. They would include impairment charges, the effect of derivative instruments not designated as hedging instruments, significant gains or losses from the disposition or restructuring of businesses, gains and losses on assets held for sale, transaction-related costs, income and loss on the extinguishment of debt and other significant items that would not be representative of our ongoing business. We will use the non-gaap measure of Adjusted EPS to enhance the usefulness of our financial information by providing a measure which management internally uses to assess and evaluate the overall performance and highlight trends in the ongoing business. In order to provide a meaningful basis for comparison, we are providing information with respect to our Adjusted EPS for the three and six months ended June 30, 2017 and 2016, reconciled for each such period to diluted income per share, which is believed to be the most directly comparable measure under GAAP.